Ch.11

Country risk

11-12-13

Country Risk Analysis
• International business activities of the MNC
– Importing, extracting and/or processing raw materials
– Operating production or service facilities
– Distribution and sale of products or services

MNCs are exposed to country specific risk when conducting any of these activities

1

Country Risk Analysis
• What risk do MNCs face when conducting business in a foreign country?

• Factors to consider
– Economic
– Political
– Regulatory

2

MGMT 415, Fall 2013

Ch.11

Country risk

11-12-13

Risk Indicators
• Economic
– Rampant inflation
– Volatile currency rates
– Balance of payment deficits
– Slowed growth of per capita GDP
– Relative size of government debt
– Money expansion
– Existence of government-imposed barriers to market forces

3

Risk Indicators
• Political & Regulatory
– Frequency of government changes
– Level of violence, number of armed insurrections
– Conflict with other states
– Existence of government-imposed barriers to market forces
– Level of tax rates
– Amount of government-owned firms
– Political and fiscal responsibility
– Amount and extent of corruption

4

MGMT 415, Fall 2013

Ch.11

Country risk

11-12-13

Expropriation
• Taking of foreign property with or without compensation
• Uncertain property rights
– Shareholder dilution
– Patent infringement
• Creeping Expropriation
– Gradual erosion of value
– Discriminatory taxes
– Price controls
– License cancellation
5

Fiscal Irresponsibility
• Fiscal irresponsibility